New York AG investigating Bain Capital, other firms for tax evasion

New York Attorney General Eric Schneiderman has launched an investigation into whether some large private equity firms—among them Bain Capital, the firm founded by Republican presidential candidate Mitt Romney—took advantage of a tax loophole to avoid paying hundreds of millions of dollars in taxes.

According to the New York Times, who first reported the story, executives with knowledge of the investigation said Schneiderman had subpoenaed around a dozen firms in the past few weeks seeking any documents that could shed light on their tax-writing procedures. At issue is whether those firms used a shady, legally-dubious practice of labeling certain fees as investments, thus allowing them to be taxed at a far lower rate to produce huge savings over the long run.

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Last month, Gawker obtained and posted nearly one thousand pages of Bain’s finances, revealing that the firm utilized the controversial tax strategy to classify at least $1 billion in fees as capital gains-producing investments. While the fees could have been taxed at up to a 35 percent rate, as investments they were subject to a more modest 15 percent rate, saving Bain around $200 million.

Sources told the Times that the subpoenas predate the publication of those financial documents, though the timing of both, with the election two months away, draws attention to a potential abuse of tax law at a time when Democrats are eager to push a narrative about top-earners not paying their fair share of taxes. The investigation could also serve as a new weapon for President Obama’s campaign team, which has sought to paint Romney as a profiteering executive in campaign ads by pointing the finger at some of Bain’s more controversial business practices, such as outsourcing and leveraged buyouts.

The subpoenas are sure to strike some as being politically motivated and deliberately timed to tarnish Romney’s image just before November. Schneiderman is a popular figure among progressives who applaud his eagerness to take on powerful financial interests, and President Obama appointed him in January to head a new committee tasked with investigating the recession’s mortgage crisis.

“The American people deserve a robust and comprehensive investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction,” Schneiderman said of his appointment at the time.

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About the Author

Jon Terbush is a Boston-based writer whose work has appeared in Talking Points Memo, Business Insider, the New Haven Register, and elsewhere. He tweets about politics, cats, and baseball via @jonterbush.